by ~ Seth V. Jackson (Email) (Web Site) ~ and ~ Andrew Ian Douglass (Morrison Mahoney LLP), Thomas M. Elcock (Prince Lobel Glovsky & Tye LLP), Eric Herstine (Lexington Ins. Co. - Boston) and Richard G. Waterman (Northwest Reinsurance, Inc.) During this lively panel, Andrew Douglass, Tom Elcock, Eric Herstine and Richard Waterman discussed and debated the problems that cedents and reinsurers face in reinsurance arbitrations as well as possible solutions. Ultimately, the panel seemed to agree that “if it ain’t broke, don’t fix it.” Or as panel member, Richard Waterman stated: although the reinsurance arbitration process has numerous problems, the process is a good one that, at most, needs a few improvements.
Some panelists had greater concern than others over the effectiveness of arbitration. For example, it was noted that that some people consider the arbitration process to be broken because it is not being administered the way that it was initially intended – as a quick, simple, private and cost effective tool. Those holding this view feel that some participants drag out arbitrations to extend the time before it is necessary to make payments. One panelist countered that arbitration panels have a duty to manage arbitrations and narrow the scope of the issues to be arbitrated to ensure that arbitration fulfills its goals. However, another panelist responded that many arbitrators do not agree that it is their duty to limit the arbitration, but instead prefer to allow the parties wide latitude to pursue the discovery and issues that they believe are important.
The panelists also emphasized the positive aspects of arbitration. For example, while conceding that there is a certain level of dissatisfaction with the current arbitration process, Waterman argued that overall, arbitration is a sensible and effective way to resolve reinsurance disputes. Rather than throwing the system out altogether, the industry should look for ways to improve it. Waterman noted, for example, that arbitration panels are preferable to courts because companies can control the composition of the panels—ensuring knowledgeable decisionmakers—and freeing them from the random selection of judges and juries in the court system. In a similar context, other panelists noted the value of confidentiality. For example, Douglass explained that while lawyers may want to win in the court of law, on the executive floor, it is also important that the company win in the court of public opinion. In this context, confidentiality provides an additional benefit of arbitration.
One hot topic was whether arbitration panels should consist entirely of neutrals. Waterman stated an all-neutral panel would be a great idea as long as the parties pick neutrals who truly understand the issues before the specific arbitration panel. The pool of possible arbitrators could fill out questionnaires beforehand which would allow parties to select the most knowledge people for a particular panel. Herstine agreed that all-neutral panels could be workable as long as the arbitrators were familiar with the issues at hand. Further, Herstine stated that neutrals would be more inclined to look at the evidence before the panel, rather than negotiate for the party who appointed them. In doing so, neutrals may be more inclined to get it right.
Herstine advanced the intriguing possibility of arbitrating before a single neutral on smaller matters, instead of a three-person panel, a more efficient claims resolution procedure that might save the parties time and money. However, Waterman argued for the value of multiple, contending voices in large complex cases where it is helpful to have three members discuss the evidence and issues presented to the panel.
Since current arbitration panels are not composed entirely of neutrals, the symposium panelists debated whether and to what extent a party appointed arbitrator should act as an advocate. Waterman stated that he was once told the “ideal party appointed arbitrator would have the maximum predisposition to his party’s position with the minimum appearance of bias.” He pointed out that many arbitrators are able to advocate effectively for their side’s positions without giving the appearance of bias. Further, arbitration rules do allow for a party appointed arbitrator to have a predisposition to the side that appointed that person. However, at the end of the day, Waterman said that it is the party appointed arbitrator’s responsibility to follow his or her conscience, to do what is right and to judge fairly based upon the facts and circumstances presented.
In a similar vein, Herstine emphasized that a party’s advocate is its lawyer, not its arbitrator, and Douglass agreed. Similarly, all three panelists agreed that appointing an attorney to an arbitration panel does not give the appointing party an advantage. Douglass stated that an attorney may have more knowledge regarding a privilege log issue, but this would not make or break an arbitration. Waterman added that lawyers on arbitration panels have always made clear to him that they are serving as industry people, not as lawyers. As a result, lawyers serving on arbitration panels typically do not try to dominate the panel with “legalese” or precedent. However, Herstine did point out that an attorney may be the best advocate in a case that depends for the most part on an issue of law.
Finally, and perhaps surprisingly given current practice, the panelists all agreed that arbitration panels should be asked to render reasoned decisions. Waterman went so far as to advocate that a reasoned decision should be required, especially in larger cases. He explained that a reasoned decision need not be lengthy or structured like a judicial opinion, but instead should provide a straightforward explanation of the panel’s reasoning. The decision could include a small finding of facts section, some case law (if relevant) and the custom and practice of the industry. Waterman explained that the process of putting the opinion into words makes all three panel members think especially carefully about the basis for the opinion. Herstine added that reasoned decisions would help companies understand and evaluate their positions in other cases by creating something like precedent that could be used internally in the future.
In conclusion, panelists agreed both that the system can and should be improved, but also that arbitration is an effective means of resolving reinsurance disputes. Responding rhetorically to the question whether the process of arbitration is “broken,” Douglass reminded the audience of Winston Churchill’s famous quote that “democracy is the worst form of government except all those other forms that have been tried from time to time.”
Seth Jackson can be reached at sjackson@zelle.com.
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